SoftBank's Son Isn't Running for Cover With Swiss Re

The billionaire's desire for deals is insatiable.
Photographer: Jeenah Moon/Bloomberg
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What could be a more perfect match than a cash-rich company with waning returns and a consummate dealmaker with an insatiable desire for investments?

That may be the best lens through which to consider the news that Masayoshi Son's SoftBank Group Corp. is in talks to buy 25 percent of Swiss Re AG, in a deal that would value the reinsurer at as much as 37 billion Swiss francs ($39 billion).

The $500 billion reinsurance industry has been going through a tough time lately, with a clutch of new entrants including hedge-fund manager Dan Loeb intensifying competition just as a string of natural disasters has pressured earnings.

Net income at Swiss Re fell more than 90 percent to $331 million last year, hammered by claims from hurricanes Harvey, Irma and Maria, and struggles in its core property and casualty reinsurance business. Meanwhile, years of low interest rates have depressed returns on the company's "float" -- the premiums collected by insurers before claims are paid.

It's this pool of funds that may be the key attraction for Son. As a minority investor, SoftBank wouldn't be in a position to direct Swiss Re's investment strategy. But it may have influence. SoftBank is seeking a board seat, and Swiss Re in February welcomed the prospect of such an "anchor shareholder" after being approached by the Japanese company.

Using the float is a model set by Warren Buffett that many Asian billionaires have sought to emulate. The U.S. investor used cash flows from insurance to help fund deals that turned Berkshire Hathaway Inc. into a $500 billion powerhouse.

In the meantime, Swiss Re stock offers a chunky dividend yield of more than 5 percent that would help SoftBank service its Venezuela-like debt levels.

Swiss Generosity

SoftBank could benefit from Swiss Re's dividend payout largesse. The Swiss reinsurer gave out nearly $1.6 billion in dividends last year.

Source: Bloomberg

There may also be a strategic logic. The purchase potentially would create an in-house insurer for SoftBank's many stakes in the so-called gig economy, from Uber Technologies Inc. to WeWork Cos. Son could even potentially disrupt the $700 billion motor insurance market that is the most important business line for reinsurers. SoftBank is probably the world's biggest investor in ride-hailing companies: Besides Uber, it has stakes in China's Didi Chuxing, India's Ola and Singapore's Grab.

The Japanese technology investor could also bring online heft to Swiss Re's digital strategy. SoftBank already has stakes in U.S. startup Lemonade Insurance Agency LLC and China's ZhongAn Online P&C Insurance Co. It's pouring money into startups spun out of Ping An Insurance (Group) Co., perhaps the most innovative of China's insurers. With big data crucial in analyzing losses and risks at insurers, Swiss Re could do worse than connect with these players.

Another explanation that may be less reassuring for SoftBank investors is that Son simply can't control his hunger for deals. On Wednesday, the billionaire signed an agreement with Saudi Arabia to build a $200 billion solar power development that's far larger than any other project.

SoftBank's $93 billion Vision Fund, the world's biggest private equity pool, "may be lost in a complex loop of flows" when it comes to Saudi Arabia, its biggest investor, according to Jefferies Group LLC. Son is already on the hook to pour as much as $10 billion into state-controlled Saudi Electricity Co.

The blizzard of dealmaking has taken a toll on investors, with SoftBank stock persistently trading at a discount to the value of its assets. The company is planning an IPO of its telecom unit, partly in an attempt to narrow that gap.

Widening Gap

SoftBank is trading at 38 percent discount to what analysts think it is worth

Source: Bloomberg

Insurance is a staid business, but the past two days suggest Son isn't ready to settle down yet. Swiss Re may just be fuel for further adventures.




This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

    To contact the editor responsible for this story:
    Matthew Brooker at mbrooker1@bloomberg.net

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